HDFC Bank pegs GDP growth higher at 7.3% in FY19 on rural push

Second largest private sector lender HDFC Bank expects an uptick in GDP growth in FY19 to 7.3% from the 6.5% estimated for FY18, expecting a rural push by Government and rise in consumption.

"We expect GDP growth to pick up to 7.3% in FY19 and the gross value added growth to stand at 7.1%," its economists said in a note.

The government's official estimate for FY18 growth stands at 6.5%, much lower than what experts would call as the potential, and restricted by the GST implementation and effects of the note ban.

HDFC Bank said a normal monsoon will support rural consumption and additionally, help will also come from farm loan waivers. A surge in salaries for government servants through the implementation of the seventh pay commission will also help.

The Government will focus on rural sector and infrastructure, including road, railways and affordable housing, it said.

Efficiency gains from GST roll out and a disappearance of the demonetisation reverses will give a positive base effect for the growth, it said.

On the negative side, it warned of a surge in oil prices causing the 'twin deficit' problem with a surge in fiscal and current account gaps, sluggish global growth and a rise in consumption restricting the consumption.

Even as it put governments at the centre and states adopting fiscal consolidation path as one of the factors which can negatively impact growth, it estimated the central government to not narrow the FY19 fiscal deficit to the targeted level of 3% under an adopted path. It said the fiscal deficit for FY19 will come at 3.2%. The bank economists also expect the current account deficit to widen to 2.5% for FY19, from the 1.5% expected for FY18.

On the inflation front, it said price-rise will peak to 6% by mid-2018 on a low base and cool-off in the second half of the fiscal.

It expects a hike of 0.25% in the policy rate by the Reserve Bank during the fiscal year 2018-19.

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